Divorce Financial Planning

Part 3: Assess Your Liability Exposure and Revisit Legal Documents

Assess Your Liability Exposure

Most likely your various assets had a joint titling when you were married. A bank account titled “joint with rights of survivorship” means each party is an equal owner, or 50% owners. Homes are often titled “joint tenants in common” which means each party is a 100% owner. These and other forms of titling provide a degree of liability protection. If you were to get in a lawsuit because of, let's say, a car accident, the assets in the bank account could be exposed to the level that person owns, while the home has more protection.

However, when assets become yours after divorce you can own them 100% yourself through “individual titling." That car accident can put them at risk for being garnished in a lawsuit.

One way to help with this is to purchase a personal umbrella policy through a property and casualty agent. They are affordable with annual premiums of just a few hundred dollars for a million dollars or more of coverage.

Note, retirement plans covered under the Employment Retirement Income Security Act (ERISA) are protected under federal law from creditors in a lawsuit.

Revisit legal documents and beneficiaries

It goes without saying that you should revisit your legacy documents when divorce financial planning. Be sure to change beneficiaries on life insurance, retirement accounts, pensions, annuities, and other programs with beneficiary designations. You may also want to place a Transfer On Death (TOD) designation on any individually owned, non-beneficiary account, such as a savings account or brokerage account, to help pass the asset to heirs without going through time consuming probate.

Meeting with an attorney is also a good idea when divorce financial planning. In addition to modifying the will, it is important to modify, if not establish, a Medical Directive and a Financial Power of Attorney. These documents identify someone to act on your behalf if you do not have the ability. You may have drafted one while you were married, but don’t forget to alter the parties who can act in accordance to the document. Otherwise, your mother-in-law, for example, may be signing off on your final medical decisions.

In conclusion, divorce is a painful and difficult time for most. It’s hard to focus on what is important when the life transition throws several balls in the air to juggle at once. Where should the focus be? Kids. Home. Income. Conflict resolution. The key is to be resourceful. Call on experts who have your best interest in mind to help you when divorce financial planning, and who can relate to the challenges ahead. Place your own best interests first by being in a position of strength to move on and grow – even if you have to take a temporary step back.

Additional Divorce Financial Planning Tips

Divorce Financial Planning - Part 1: Transition and Cash-Flow
Divorce Financial Planning - Part 2: Taking Inventory and the Real Cost of Living

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